Startup general interest

Parallels between Bitcoin and the internet

By April 8, 2013 No Comments

As you may have noticed, the hype around Bitcoin continues to grow. The latest milestone to capture headlines is that there are now over $1bn of Bitcoins in circulation. That’s up 2.5x since in the month since 8th March when I  wrote a post titled Bitcoin – the future of money?. The increase has largely been driven by a 10x increase in the Bitcoin:Dollar exchange rate since January, a level of volatility which raises huge questions in and of itself.

Reading some of the latest articles this morning I was struck by the parallels between Bitcoin and the internet. Before the web, data communications occurred over centralised networks that were controlled by telcos and regulated by governments. Now they happen over a single decentralised network that is controlled by protocols and regulated by international standards bodies. Today money is distributed over centralised networks controlled by governments and banks and regulated by governments. With Bitcoin the network is decentralised and controlled by algorithms and protocols.

I think we can infer a few things from these parallels:

  1. Bitcoin’s current state of development is probably akin to where the internet was in the late 1980s when Vint Cerf and Bob Kahn were developing the TCP/IP protocols which made the internet a viable commercial platform. There is equivalent work still to be done on core elements of Bitcoin if it is to become truly useful.
  2. The great things about the internet (and other decentralised networks) are its low cost and its flexibility. These attributes could enable innovations in the sphere of money that we couldn’t dream of today – just as in 1990 nobody was dreaming that a key use case for the web would be learning what my friends have been reading each morning or seeing photos of places they had visited over the weekend.
  3. The great weakness of the web is security, which is a much bigger issue in the realm of money, and could be the limiting factor for Bitcoin.
  4. Bitcoin isn’t the all or nothing proposition it is often described as. The internet has always and continues to co-exist with other data networks, starting with a small market share and growing each year. If it succeeds Bitcoin will most likely co-exist with national currencies, rather than replacing them.

Writing this post has reminded me that I bought £50 of Bitcoin when we were looking at the currency in June of last year. I couldn’t find anything interesting to spend it on then (although that would be different now…) which should be a good thing as those Bitcoins are now worth £500-1,000, but I can’t remember where I put them!